Ryanair Lifts Profit Forecast After Strong Summer

Ryanair Lifts Profit Forecast After Strong Summer

2015 09 10

2015 09 10

Ryanair raised its full-year profit forecast by 25 percent, as it exploited its low-cost model and growing capacity to eclipse rivals in a strong summer for European aviation.

Poor summer weather in northern Europe has helped boost demand for flights from everyone from budget carriers such as easyJet and Norwegian to traditional carriers British Airways and Lufthansa.

But the scale of Ryanair's outperformance, with fares up 2 percent even as it increased capacity by 13 percent in the six months to September, came as a surprise even to the airline itself, which brought forward its statement from September 24.

Ryanair has the lowest cost base of any airline, around 60 percent below Lufthansa, according to CAPA - Centre for Aviation, and operates a fleet of more than 300 Boeing 737-800s, with hundreds more on order.

The Irish airline, Europe's largest by international passenger numbers, said it now expects net profit for the 12 months to March 2016 to be between EUR€1.175 billion (USD$1.3 billion) and €1.225 billion, up from an earlier forecast of €940 million to €970 million.

EasyJet last week raised its annual profit forecast after record demand for beach holidays and city breaks, but by a much lower 7 percent.

Lufthansa, Europe's largest aviation group by revenue, is meanwhile struggling with a two-day pilot strike stemming from its efforts to cut costs.

The German airline has said it would comfortably reach its 2015 profit targets after a better than expected July and August, yet a forecast operating profit margin of around 5 percent compares with around 20 percent for Ryanair.

Ryanair said in a statement it expected fares to be higher than previously forecast in the three months to December, but forecast "sustained fare wars" in the spring, with Germany and Lufthansa a key target.

"The likes of Air Berlin, Germanwings etc will probably try to hang on to the market share that they have, which will lead to share pressure across the winter," chief financial officer Neil Sorahan said.

Ryanair increased its full-year capacity growth target from 14 to 15 percent, with annual growth planned to hit 20 percent in the three months to March. It is now "the key player" in capacity growth in Europe, Goodbody analyst Mark Simpson said in a note.

Industry experts say Lufthansa is having a hard time dealing with its unions because its forecast of improving results runs counter in the eyes of some workers to its stated need for savings.

Lufthansa may even have helped Ryanair by expanding its Germanwings budget brand in Germany, where low-cost carriers have been slow to take market share, said Jonathan Wober, chief financial analyst at CAPA - Centre for Aviation.

"Lufthansa, through expanding Germanwings, has warmed up customers to the idea of no-frills flying and having unbundled fares," Wober said. "Now Ryanair, with its lower cost base, can come in and undercut on price."